Taxpayer liable for willful violation of FBAR requirements.

• Author: Beavers, James A.
• Position: Foreign bank account reporting

The Fourth Circuit reversed a district court and held that a taxpayer had willfully violated the foreign bank account reporting requirements for two foreign bank accounts.

Background

In 1993, J. Bryan Williams opened two Swiss bank accounts in the name of ALQI Holdings Ltd., a British corporation (the ALQI accounts). From 1993 through 2000, Williams deposited more than $7 million into the ALQI accounts, earning more than $800,000 in income on the deposits. However, for each of the tax years during that period, Williams did not report to the IRS the income from the ALQI accounts or his interest in the accounts, as he was required to do under 31 U.S.C. Section 5314 (Section 5314).

By the fall of 2000, Swiss and U.S. authorities had become aware of the assets in the ALQI accounts. Williams retained counsel, and on Nov. 13, 2000, he met with Swiss authorities to discuss the accounts. The following day, at the request of U.S. authorities, Swiss authorities froze the ALQI accounts.

When having his 2000 federal tax return prepared in January 2001, Williams completed a "tax organizer" that his accountant had provided to him. In response to the question in the tax organizer regarding whether Williams had "an interest in or a signature or other authority over a bank account, or other financial account in a foreign country," Williams answered "No." In the return Williams filed for 2000, he answered "No" on line 7a of Part III of Schedule B, indicating that he did not have an interest in or signature authority over a financial account in a foreign country. Williams also did not file a Form TD F 90-22.1, Report of Foreign Bank and Financial Accounts (FBAR), by the June 30, 2001, deadline.

Subsequently, upon the advice of his attorneys and accountants, Williams fully disclosed the ALQI accounts to an IRS agent in January 2002. In October 2002, he filed his 2001 federal tax return on which he acknowledged his interest in the ALQI accounts. Williams also disclosed the accounts to the IRS in February 2003 as part of his application to participate in the Offshore Voluntary Compliance Intiative. At that time, he also filed amended returns for 1999 and 2000, which disclosed details about his ALQI accounts.

In June 2003, Williams pleaded guilty to conspiracy to defraud the IRS and criminal tax evasion in connection with the funds held in the ALQI accounts from 1993 through 2000. As part of the plea, Williams agreed to admit in writing to all of the essential...